What Are The Consequences Of Non-Filing Of Income Tax Returns?

Filing Income Tax Returns (ITR) on time is essential for tax compliance. Failure to file ITR can result in penalties, interest on unpaid taxes, legal notices, and even prosecution in severe cases. Additionally, non-filing can affect a taxpayer’s financial credibility, impacting loan approvals and refunds.

Consequences of Non-Filing of Income Tax Returns

1. Late Fees and Interest Charges

Under Section 234F, a late fee of ₹5,000 is applicable if ITR is filed after the due date but before December 31.

If filed after December 31, the penalty is reduced to ₹1,000 for taxpayers with income below ₹5 lakh.

Interest under Section 234A is levied at 1% per month on unpaid tax.

2. Loss of Income Tax Refunds

If TDS (Tax Deducted at Source) is deducted but ITR is not filed, the taxpayer cannot claim a refund for excess tax paid.

3. Legal Notices and Scrutiny from Income Tax Department

The Income Tax Department may issue a notice under Section 142(1) or 148 for non-filing of ITR.

Continuous non-filing can lead to a detailed tax scrutiny and investigation.

4. Disqualification from Carrying Forward Losses

Losses from capital gains, business, or property income cannot be carried forward if ITR is not filed before the due date.

5. Higher Tax Deductions in Future Years

As per Section 206AB, non-filers may face higher TDS rates (double the standard rate or 5%, whichever is higher).

6. Criminal Prosecution for High-Value Non-Filing

If a taxpayer fails to file ITR and has unpaid tax liability, the IT department can prosecute under Section 276CC:

• 3 months to 2 years imprisonment + fine if tax dues exceed ₹10,000.
• 6 months to 7 years imprisonment for tax evasion over ₹25 lakh.

Legal Actions and Protections

File a Belated Return

Under Section 139(4), taxpayers can file a belated ITR before December 31 of the assessment year.

File an Updated Return

Under Section 139(8A), an updated return (ITR-U) can be filed within two years, but with a penalty of 25-50% of additional tax liability.

Respond to Tax Notices Promptly

If a notice is received, comply immediately to avoid further legal complications.

Example

A salaried individual earning ₹12 lakh annually forgets to file ITR. The consequences are:

• A penalty of ₹5,000 under Section 234F.
• 1% monthly interest on unpaid tax liability under Section 234A.
• Higher TDS deduction (20% instead of 10%) on future earnings under Section 206AB.
• Cannot claim ₹25,000 refund on excess TDS deducted by the employer.

To fix this, the taxpayer files a belated return before December 31, pays the penalty and interest, and avoids further legal action.